Appeal details
Counselvise Citation
[2019] 116 COUNSELVISE.COM (IT) 4625 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
5 year(s) 6 month(s) 1 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
26-08-2019
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
C
Next Hearing Date
20-08-2019
Assessment Year
2009-2010
Appeal Filed On
24-02-2014
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH C, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER . / ITA. NO.342/PUN/2014 / ASSESSMENT YEAR : 2009-10 DCIT, CIRCLE-4, PUNE VS. IGATE GLOBAL SOLUTIONS LTD., 158-162(P), EPIP PHASE-II, WHITEFIELD, BANGALORE 560066 PAN : AABCM4573E (APPELLANT) (RESPONDENT) . / IT(TP) A. NO.10/BANG/2014 / ASSESSMENT YEAR : 2009-10 CAPGEMINI TECHNOLOGY SERVICES INDIA LIMITED (EARLIER KNOWN AS IGATE GLOBAL SOLUTIONS LTD.), PLOT NO.14, RAJIV GANDHI INFOTECH PARK, HINJEWADI, PHASE-III, MIDC-SEZ, TALUKA MULSHI, PUNE, MAHARASHTRA 411 057 PAN : AABCM4573E (APPELLANT) VS. ACIT, RANGE-11, BANGALORE (RESPONDENT) ASSESSEE BY SHRI PADAMCHAND KHINCHA REVENUE BY SHRI NEERAJ BANSAL, CIT DATE OF HEARING 20-08-2019 DATE OF PRONOUNCEMENT 26-08-2019 ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 2 / ORDER PER R.S.SYAL , VP : THESE TWO CROSS APPEALS ONE BY THE ASSESSEE AND THE O THER BY THE REVENUE ARE DIRECTED AGAINST THE ORDER PASSED BY THE CIT (A)- IV, BANGALORE ON 08-11-2013 IN RELATION TO THE ASSESSMEN T YEAR 2009-10. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESS EE, AN INDIAN COMPANY, IS A SUBSIDIARY OF IGATE INCORPORATED, U SA. IT ACTS AS A SINGLE SOURCE BROAD RANGE OF INFORMATION TECHNOLOGY APPLICATIONS, SOLUTIONS AND SERVICES THAT INCLUDE CLIENT/SERVER POSITION AND DEVELOPMENT. THE ASSESSMENT WAS COMPLETED BY TH E AO APPLYING THE PROVISIONS OF SECTION 115JB SINCE THE AMOUN T OF TAX PAYABLE UNDER SUCH PROVISION WAS MORE THAN THE AMOUNT OF TAX COMPUTED UNDER THE NORMAL PROVISIONS. 3. FIRSTLY WE ESPOUSE GROUND NO.3 OF THE ASSESSEES APPE AL, WHICH IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF RS.90,59, 117/- MADE U/S.40(A)(IA) OF THE INCOME-TAX ACT, 1961 (HEREINA FTER ALSO CALLED `THE ACT) FOR FAILURE TO DEDUCT TAX AT SOURCE FROM P AYMENT OF SOFTWARE EXPENSES. ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 3 4. THE FACTUAL MATRIX OF THIS GROUND IS THAT THE ASSESSEE CLAI MED DEDUCTION OF RS.90,59,117/- TOWARDS SOFTWARE EXPENSES. NO DEDUCTION OF TAX AT SOURCE WAS MADE ON PAYMENT MADE TO A RESIDENT PAYEE. RELYING ON THE JUDGMENT IN THE CASE OF CIT VS. SAMSUNG ELECTRONICS CO. LTD. & ORS. , THE AO MADE THE DISALLOWANCE U/S 40(A)(IA) OF THE ACT, WHICH CAME TO BE COUNTENANCED IN THE FIRST APPEAL. THE ASSESSEE IS AGGRIEVED BY THE SUSTENANCE OF S UCH DISALLOWANCE. 5. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELE VANT MATERIAL ON RECORD. THE ASSESSEE PAID RS.90.59 LAKH TO AN INDIAN PARTY TOWARDS ANNUAL LICENSE FEE FOR RENEWAL OF MICROSOFT S OFTWARE LICENSE, WHICH WAS CLAIMED AS REVENUE EXPENDITURE. THE REVENUE NATURE OF THE EXPENDITURE WAS NOT DISPUTED BY THE AO. HOWEV ER, THE AUTHORITIES BELOW HELD SUCH PAYMENT TO BE IN THE NATURE OF RO YALTY REQUIRING DEDUCTION OF TAX AT SOURCE AND IN THE ABSENCE OF ANY TAX WITHHOLDING BY THE ASSESSEE, THE DISALLOWANCE WAS ATTRACTED U/S.40(A)(IA) OF THE ACT. 6. THE MOOT QUESTION IS WHETHER THE PAYMENT MADE BY THE ASSESSEE, A RESIDENT-PAYER, TO A RESIDENT-PAYEE TOWARDS ANNUAL LICENSE FEE PAID FOR THE RENEWAL OF MICROSOFT SOFTWARE IS IN THE ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 4 NATURE OF ROYALTY? IN CIT & ORS VS. SAMSUNG ELECTRONICS COMPANY LTD. & ORS (2009) 227 CTR 335 (KAR.) THE ASSESSEE, A BRANCH OF SAMSUNG ELECTRONICS CO. LTD., KOREA, WAS ENGAGED IN THE DEVELOPMENT, MANUFACTURE AND EXPORT OF SOFTWARE FOR USE BY ITS PARENT COMPANY, I.E., SAMSUNG ELECTRONICS CO. LTD., KORE A. IN THE ASSESSMENT YEAR 1999-2000, THE ASSESSEE IMPORTED SOFTWA RE PRODUCTS OF RS.2,28,960/- FROM TEKTRONIX INC., USA. SIMILAR LY, DURING THE OTHER TWO YEARS, THE ASSESSEE IMPORTED SOFTWAR E, NAMELY, TELELOGIC TAU TTCN SUITE, WHICH WAS READILY AVAILABLE IN THE MARKET. NO DEDUCTION OF TAX AT SOURCE WAS DONE AS SUCH PAYMENTS, IN THE OPINION OF THE ASSESSEE, MADE TO THE FOREIGN COMPA NIES COULD NOT BE TREATED AS ROYALTY AS PER THE PROVISION OF SECTION 9(1 )(VI) READ WITH THE RESPECTIVE DOUBLE TAXATION AVOIDANCE AGREEMENTS. THE CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED BY THE ITO (TD S), WHO HELD THAT THE ASSESSEE WAS A DEFAULTER FOR NOT DEDUCTING TA X AT SOURCE FROM THE REMITTANCES MADE FOR PURCHASE OF THE SOFTWARE AS THE PROVISIONS OF SECTION 9(1)(VI) OF THE ACT WERE ATTRACTED AND THE PAYMENT MADE BY THE ASSESSEE WAS IN THE NATURE OF ROYALTY ON WHICH TAX OUGHT TO HAVE BEEN DEDUCTED. THE AO PLACED RELIANCE O N THE DEFINITION OF THE TERM `ROYALTY AS MENTIONED IN THE DTAA AN D ACCORDINGLY HELD THAT THE ASSESSEE WAS A DEFAULTER WITHIN THE ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 5 MEANING OF SECTION 201(1) OF THE ACT. THE FIRST APPEAL FAILE D BUT THE TRIBUNAL GRANTED RELIEF BY HOLDING THAT PAYMENT WAS NOT IN THE NATURE OF ROYALTY FOR THE REASON THAT IT DID NOT PARTAKE OF THE CHARACTER OF ROYALTY IN TERMS OF THE DTAA. WHEN THE MATTER CAME UP BEFORE THE HONBLE HIGH COURT, IT HELD THAT A RESIDENT PA YER WHO HAD NOT FILED AN APPLICATION U/S. 195(2) OF THE ACT CANNOT LATER ON CONTEND THAT NO PART OF THE PAYMENT RESULTED IN ANY TAXABLE INC OME IN THE HANDS OF NON-RESIDENT RECIPIENT. IN PARA 69 OF THE JUDGMENT, THE HONBLE HIGH COURT ALSO HELD THAT : THE ASSESSING AUTHORITY AND THE FIRST APPELLATE AUTHORITY WHILE ARE CORRECT TO THE EXTENT OF HO LDING THAT THERE WAS AN OBLIGATION ON THE PART OF THE RESIDENT PAYER S IN EFFECTING A DEDUCTION FROM OUT OF THE PAYMENTS MADE BY THE M IN FAVOUR OF THE NON-RESIDENT RECIPIENTS EVEN AS CONSIDERATION FOR ACQUIRING WHAT IS KNOWN AS 'SHRINK WRAPPED SOFTWARE' OR W HAT IS SOUGHT TO BE DESCRIBED AS 'READY TO SELL, OFF THE SHELF, P ACKAGED SOFTWARE PRODUCT.. THE ASSESSEE APPROACHED THE HON BLE SUPREME COURT, WHICH REMITTED THE MATTER TO THE HONBLE HIGH COURT FOR RENDERING A FRESH DECISION. AFTER CONSIDERING A LL THE ASPECTS, THE HONBLE KARNATAKA HIGH COURT IN THE SECOND RO UND IN CIT VS. SAMSUNG ELECTRONICS CO. LTD. (2012) 345 ITR 494 ( KAR.) HAS HELD THAT THE ASSESSEE HAVING IMPORTED SHRINK WRAPPED ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 6 SOFTWARE/OFF-THE-SHELF SOFTWARE FROM NON-RESIDENT COMPANIES UNDER SOFTWARE LICENCE AGREEMENT WHEREBY LICENCE IS GRANTED TO THE ASSESSEE FOR TAKING COPY OF THE SOFTWARE, STORE THE SAME IN THE HARD DISK OF THE DESIGNATED COMPUTER AND TO TAKE A BACK UP COPY WHILE THE OWNERSHIP OF THE COPYRIGHT CONTINUES TO VEST IN THE SUPPLIE R, THERE IS ONLY A TRANSFER OF RIGHT TO USE COPY OF THE SOFTWAR E FOR THE INTERNAL BUSINESS AS PER THE TERMS AND CONDITIONS OF THE AGRE EMENT AND, THEREFORE, THE PAYMENT MADE TO THE SUPPLIERS OF THE S OFTWARE CONSTITUTES 'ROYALTY' WITHIN THE MEANING OF ARTICLE 12(3) OF THE INDO- US DTAA AND ALSO AS PER THE PROVISIONS OF SECTION 9(1)(VI). CONSEQUENTLY, THE ASSESSEE WAS UNDER HELD TO BE UNDER OB LIGATION TO DEDUCT TAX AT SOURCE UNDER SECTION 195 FROM THE AMOUNT PAID TO THE FOREIGN SOFTWARE SUPPLIERS. SIMILAR VIEW HAS BEEN REITERATED B Y THE HONBLE KARNATAKA HIGH COURT IN CIT (IT) VS. SUNRAY COMPUTERS (P) LTD. (2012) 348 ITR 196 (KARN) BY HOLDING THAT THE PAYMENT MADE FOR SUPPLY OF SOFTWARE BY L-TECHNOLOGIES, USA WAS R OYALTY AND LIABLE TO BE TAXED IN INDIA U/S.9(1)(VI) READ WITH THE DTA A BETWEEN INDIA AND USA. IN VIEW OF THE ABOVE PRECEDENTS , IT IS CLEAR THAT THE HONBLE KARNATAKA HIGH COURT HAS TAKEN A VIEW THAT THE PURCHASE OF OFF-THE-SHELF SOFTWARE UNDER SOFTWARE LICENCE AGREEMENT RESULTS IN ONLY A TRANSFER OF RIGHT TO USE COPY OF THE SOF TWARE AND, ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 7 HENCE THE PAYMENT MADE TO THE SUPPLIER OF THE SOFTWARE CON STITUTES 'ROYALTY', INTER ALIA, AS PER THE PROVISIONS OF S. 9(1)(VI). FAILURE TO DEDUCT TAX AT SOURCE HAS BEEN HELD TO ATTRACT THE LEGAL CONSEQ UENCES FLOWING THEREFROM. 7. AU CONTRAIRE , THE HONBLE DELHI HIGH COURT IN DIT VS. ERICSSON A.B. (2012) 343 ITR 0470 (DEL) HAS HELD THAT IN ORDER TO QUALIFY AS ROYALTY PAYMENT WITHIN THE MEANING OF SECTION 9(1) (VI) AND PARTICULARLY CL. (V) OF EXPLN. 2 THERETO, IT IS NECESSAR Y TO ESTABLISH THAT THE CELLULAR OPERATOR, BY MAKING SUCH PAYMENT, OBTAINED ALL OR ANY OF THE COPYRIGHT RIGHTS OF SUCH LITERARY WO RK. IT HELD THAT A DISTINCTION WAS REQUIRED TO BE MADE BETWEEN THE ACQUISITION OF A 'COPYRIGHT RIGHT' AND A 'COPYRIGHTED ARTICLE'. SOFTWARE SUPPLIED BY THE ASSESSEE, BEING, AN INTEGRAL PART O F THE GSM MOBILE TELEPHONE SYSTEM, INCAPABLE OF INDEPENDENT USE AND THERE BEING NOTHING TO ESTABLISH THAT THE CELLULAR OPERATOR HAD OBTAINED ANY COPYRIGHT OF SUCH SOFTWARE, IT HELD THAT NO PA RT OF THE PAYMENT RECEIVED BY THE ASSESSEE UNDER THE SUPPLY AGREE MENT COULD BE CLASSIFIED AS ROYALTY WITHIN THE MEANING OF SECTION 9(1)(VI) OF THE ACT OR UNDER THE RELEVANT CLAUSE OF THE DTAA. ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 8 8. IN DIT VS. INFRASOFT LTD. (2014) 264 CTR 329 (DELHI), THE ASSESSEE, AN INTERNATIONAL SOFTWARE MARKETING AND DEVELOPMEN T COMPANY OPENED A BRANCH OFFICE IN INDIA AND IMPORTED PA CKAGE IN THE FORM OF CDS CUSTOMIZED ACCORDING TO REQUIREMENTS OF CUSTOMERS. THE AO TREATED ENTIRE AMOUNT RECEIVED BY THE ASS ESSEE FOR TRANSFER OF SOFTWARE AS WELL AS OTHER INCIDENTAL SERV ICES IN NATURE OF ROYALTY AND FURTHER HELD THAT SINCE ROYALTY INCOME HAD ACCRUED/ARISEN TO ASSESSEE COMPANY THROUGH ITS PE IN THE FO RM OF BRANCH OFFICE IN INDIA, THE SAME WAS CHARGEABLE TO TAX IN I NDIA AS PER ARTICLE 13 OF DTAA. THE CIT(A) CONCURRED WITH THE AO . THE ITAT HELD THAT SUCH INCOME WAS NOT LIABLE TO BE TAXED AS ROYA LTY. THE HONBLE HIGH COURT HELD THAT WHAT HAS BEEN TRANSFERRED IS NOT COPYRIGHT OR RIGHT TO USE COPYRIGHT BUT A LIMITED RIGHT TO USE COPYRIGHTED MATERIAL AND HENCE DID NOT GIVE RISE TO ANY ROY ALTY INCOME. IT NOTED THAT THE LICENSEE HAD NO RIGHT TO DEAL WITH THE PRODUCT JUST AS AN OWNER WOULD BE IN A POSITION TO DO AND FU RTHER THERE WAS NO TRANSFER OF ANY RIGHT IN RESPECT OF COPYRIGHT BY ASSESSEE AND IT WAS A CASE OF MERE TRANSFER OF A COPYRIGHTED ARTICLE . AS THE PAYMENT WAS FOR A COPYRIGHTED ARTICLE AND REPRESENTED PU RCHASE PRICE OF AN ARTICLE, IT HELD THAT THE SAME COULD NOT BE CONSIDER ED AS ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 9 ROYALTY EITHER UNDER THE ACT OR THE DTAA. SIMILAR VIEW HAS BE EN REITERATED IN CIT VS. ZTE CORPORATION (2017) 392 ITR 890 (DELHI) . 9. IT CAN BE SEEN FROM THE DISCUSSION MADE IN THE IMMEDIATE LY PRECEDING PARAGRAPHS THAT THERE IS A CLEAVAGE OF OPINION A MONGST THE HIGH COURTS. WHEREAS THE HONBLE KARNATAKA HIGH COURT HAS HELD THAT THE PURCHASE OF OFF-THE-SHELF SOFTWARE UNDER SOFTWAR E LICENCE AGREEMENT IS A PAYMENT IN THE NATURE 'ROYALTY' TO THE SUPPLIE R, INTER ALIA, UNDER THE PROVISIONS OF SECTION 9(1)(VI) OF THE ACT, THE HO NBLE DELHI HIGH COURT HAS HELD IT TO BE IN THE NATURE OF BUSINESS INCOME OF THE RECIPIENT AND NOT ROYALTY. THE MATTER IS SUB JUDICE BEFORE THE HONBLE SUPREME COURT WAITING FINALITY. 10. THE LD. AR CONTENDED THAT SINCE THE APPEAL OF THE A SSESSEE HAS BEEN TRANSFERRED FROM BANGALORE TO PUNE, IT CANNOT BE SUBJE CTED TO THE JURISDICTION OF THE HONBLE KARNATAKA HIGH COURT. IN THIS CONTEXT, IT IS NOTED THAT THE ASSESSEE FILED ITS RETURN AND THE ASSESSMENT WAS COMPLETED U/S.143(3) OF THE ACT BY THE ADD L. CIT, RANGE-11, BANGALORE. THE LD. FIRST APPELLATE AUTHORITY, WHO DECIDED THE APPEAL OF THE ASSESSEE, IS CIT(A)-IV, BANGALORE. THE ASSESSEE PREFERRED SECOND APPEAL BEFORE THE BANGALORE BENCHES O F THE TRIBUNAL. SUBSEQUENTLY, A PRAYER WAS MADE FOR TRANSFER O F APPEALS ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 10 FROM BANGALORE TO PUNE, WHICH REQUEST WAS ACCEPTED AND THE APPEALS WERE TRANSFERRED TO PUNE. UNDER THESE CIRCUMSTAN CES, A QUESTION ARISES AS TO WHICH HONBLE HIGH COURT EXERCISES JURISDICTION OVER THE ASSESSEE FOR THE YEAR UNDER CONSIDERA TION. 11. THERE IS HARDLY ANY NEED TO ACCENTUATE THAT THE JURIS DICTION IS DECIDED BY THE OFFICE OF THE ASSESSING OFFICER AS HAS BE EN HELD BY HONBLE DELHI HIGH COURT IN SURESH DESAI & ASSOCIATES VS. CIT (1998) 230 ITR 912 (DELHI) . IN THAT CASE, THE ASSESSMENT WAS MADE AT BOMBAY, THE APPEAL AGAINST WHICH WAS ALSO DECIDED BY THE CIT(A), BOMBAY. BOTH THE PARTIES PREFERRED APPEALS TO TRIB UNAL, DELHI, WHICH WERE DISPOSED OF BY THE DELHI TRIBUNAL. REJECTING THE CONTENTION OF THE ASSESSEE FOR HEARING BY IT, THE HONBLE D ELHI HIGH COURT HELD THAT JURISDICTION UNDER S. 256 VESTED IN HIGH COURT OF BOMBAY AND NOT THE HIGH COURT OF DELHI. IT FURTHER OBSERV ED THAT TRANSFER OF ASSESSMENT CASES OF THE ASSESSEE UNDER SEC TION 127(1) FOR SOME YEARS OTHER THAN THE YEAR IN QUESTION HAS NO RELEVANC E OR BEARING ON TERRITORIAL JURISDICTIONAL COMPETENCE . IN DECIDING SO, IT WAS ALSO OBSERVED THAT THE: `DECISIONS OF THE HIGH COURTS AR E BINDING ON THE SUBORDINATE COURTS AND AUTHORITIES OR TRIBUNAL UNDER ITS SUPERINTENDENCE THROUGHOUT THE TERRITORY IN RELATION TO WHICH IT ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 11 EXERCISES JURISDICTION. THE BINDING AUTHORITY DOES NOT EXTEND B EYOND ITS TERRITORIAL JURISDICTION . THE QUESTIONS OF LAW ARISING FOR DECISION IN A REFERENCE SHOULD BE DETERMINED BY THE HIGH CO URT WHICH EXERCISES TERRITORIAL JURISDICTION OVER THE SITUS OF THE AO. ELSE IT WOULD RESULT IN SERIOUS ANOMALIES. AN ASSESSEE AFFECTED BY AN ASSESSMENT ORDER AT BOMBAY MAY INVOKE THE JURISDICTION OF TH E DELHI HIGH COURT TO TAKE ADVANTAGE OF THE LAW LAID DOWN BY IT AND SUITED TO HIM AND THUS GET RID OF THE LAW LAID DOWN TO THE CONTRAR Y BY THE HIGH COURT OF BOMBAY NOT SUITED TO THE ASSESSEE. THIS CANNOT BE ALLOWED. 12. THE ASSESSEE IN CIT VS. BALAK CAPITAL P. LTD. (2017) 391 ITR 112 (P&H) WAS BASED IN GUJARAT WHOSE ASSESSMENT ORDER WAS PASSED BY THE ITO, SURAT. THE FIRST APPEAL WAS ALSO FILED B EFORE THE CIT(A), SURAT. FURTHER APPEAL WAS FILED BY THE ASSESSEE BEFORE THE TRIBUNAL AT AHMEDABAD. THEREAFTER, WHEN THE REGISTERED OF FICE OF THE ASSESSEE WAS TRANSFERRED TO AMRITSAR, THE APPEAL ALSO GOT TRANSFERRED. THE ASSESSEE PREFERRED APPEAL AGAINST THE ORDER PASSED BY THE TRIBUNAL BEFORE THE HONBLE PUNJAB & HARYANA HIGH C OURT. THE HONBLE HIGH COURT HELD THAT SINCE INITIAL PROCESS OF ASSESSMENT WAS STARTED AT SURAT AND FINAL ASSESSMENT WAS F RAMED BY ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 12 AO AT SURAT, IT LACKED TERRITORIAL JURISDICTION TO ADJUDICATE THE MATTER. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE PUNJAB & HARYAN A HIGH COURT IN CIT VS. TIBETAN CHILDRENS VILLAGE (2016) 388 ITR 126 (P&H) AND THE HONBLE ALLAHABAD HIGH COURT IN CIT (E) VS. YAMUNA EXPRESSWAY INDUSTRIAL DEVELOPMENT AUTHORITY (2017) 395 ITR 18 (ALLAHABAD) HOLDING THAT THE JURISDICTION OF THE BENCH WILL BE DETERMINED NOT BY THE PLACE OF BUSINESS OR RESIDENCE OF THE ASSESSEE BUT BY THE LOCATION OF THE OFFICE OF THE AO. 13. IN VIEW OF THE FOREGOING DISCUSSION, IT IS EVIDENT THA T THE ASSESSEE IS SUBJECT TO THE JURISDICTION OF THE HONBLE KARNATAKA HIGH COURT AS THE ASSESSMENT ORDER WAS PASSED BY THE ADDL.CIT , RANGE- 11, BANGALORE. THE CONTRARY CONTENTION OF THE LD. AR IN TH IS REGARD IS, THEREFORE, REPELLED. 14. WE HAVE NOTICED ABOVE THAT THERE IS A DIFFERENCE OF OPINION BETWEEN THE HONBLE KARNATAKA HIGH COURT POR UNA PARTE AND THE HONBLE DELHI HIGH COURT POR OTRA PARTE ON THE POINT IN CONTROVERSY BEFORE US. HAVING REGARD TO THE FACT THAT THE ASSESSEE IS SUBJECT TO THE JURISDICTION OF THE HONBLE KARNATAKA HIGH COURT , IT WILL BE GOVERNED BY THE LAW LAID DOWN BY ITS JURISDICTIONAL HIGH COURT AS PER ARTICLE 226 OF THE CONSTITUTION OF INDIA ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 13 NOTWITHSTANDING A CONTRARY FAVOURABLE VIEW OF THE HONBLE DE LHI HIGH COURT, WHICH EVEN THIS BENCH OF THE PUNE TRIBUNAL HAS FOLLOWED IN SOME CASES NOT FALLING WITHIN THE JURISDICTION OF THE HONBLE KARNATAKA HIGH COURT. EX CONSEQUENTI, THE ASSESSEE WILL HAVE TO BE SUBJECTED TO THE VIEW CANVASSED BY THE HONBLE KARNATAKA JURISDICTIONAL HIGH COURT, AS PER WHICH CONSIDERATION FOR THE PURCHASE OF OFF-THE-SHELF SOFTWARE UNDER SOFTWARE LI CENCE AGREEMENT RESULTS IN ONLY A TRANSFER OF RIGHT TO USE COPY O F THE SOFTWARE, CONSTITUTING ROYALTY UNDER THE PROVISIONS OF SECTION 9(1)(VI). AS THE INSTANT CASE IS THAT OF A RESIDENT PAYING ROYALTY TO ANOTHER RESIDENT, THERE IS NO NEED TO EXAMINE ANY DTAA FR OM THE ANGLE OF TAXABILITY OR OTHERWISE OF ROYALTY IN THE HANDS OF TH E RECIPIENT AS THE SAME STANDS ESTABLISHED UNDER THE ACT. 15. AT THIS JUNCTURE, IT IS PERTINENT TO NOTE THAT THE FINANCE AC T, 2012 HAS CARRIED OUT AN AMENDMENT TO SECTION 9(1)(VI) D EALING WITH `INCOME BY WAY OF ROYALTY THROUGH INSERTION OF EXPL. 4 W .R.E.F. 1.6.1976, WHICH READS AS UNDER : - EXPLANATION 4. FOR THE REMOVAL OF DOUBTS, IT IS HE REBY CLARIFIED THAT THE TRANSFER OF ALL OR ANY RIGHTS IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION INCLUDES AND HAS ALW AYS INCLUDED TRANSFER OF ALL OR ANY RIGHT FOR USE OR RIGHT TO US E A COMPUTER SOFTWARE (INCLUDING GRANTING OF A LICENCE) IRRESPEC TIVE OF THE MEDIUM THROUGH WHICH SUCH RIGHT IS TRANSFERRED. ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 14 16. THERE ARE CERTAIN NOTICEABLE POINTS OF THIS AMENDMEN T. FIRSTLY, IT IS FOR THE REMOVAL OF DOUBTS AND HENCE CLARIFICATORY IN NATURE. SECONDLY, IT HAS BEEN INSERTED RETROSPECTIVELY FROM 1.6.1976 COVERING THE YEAR UNDER CONSIDERATION. NEXT, I T CLEARLY PROVIDES THAT THE TRANSFER OF ANY RIGHTS IN RESPECT OF `AN Y RIGHT, PROPERTY OR INFORMATION, BEING THE SAME EXPRESSION AS USE D IN THE CLAUSE (B) OF SECTION 9(1)(VI) WHICH ATTRACTS TAXATION OF INCOME FROM ROYALTY PAYABLE BY A RESIDENT, SHALL INCLUDE TRAN SFER OF ALL OR ANY RIGHT FOR USE OR RIGHT TO USE A COMPUTER SOF TWARE, WHICH ALSO COVERS WITHIN ITS AMBIT THE GRANTING OF A LICENCE. WHAT IS FURTHER RELEVANT TO NOTE NEXT IS THAT IT IS NOT ONLY THAT TH E EXPRESSION `RIGHTS IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION SHALL `INCLUDE USE OR RIGHT TO USE A COMPUTER SOFTWARE, BUT IT WILL `ALWAYS BE CONSIDERED TO HAVE BEEN SO INCLUDED, WHICH GIVES FURTHER STRENGTH TO THE RETROSPECTIVE EFFECT OF THE INSERTION OF THE EXPLANATION 4. THE NET EFFECT OF THE INSERTION OF THE EXPLANATION 4 READ WITH EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT IS THAT THE LEGISLATURE HAS MADE IT CLEAR BEY OND AN IOTA OF DOUBT THAT CONSIDERATION FOR THE USE OR RIGHT TO US E A COMPUTER SOFTWARE IN ANY FORM, INCLUDING A MERE GRANTING OF ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 15 LICENCE, WILL BE CONSIDERED UNDER THE ACT AS INCOME FROM ROY ALTY IN THE HANDS OF THE RECIPIENT. 17. SECTION 194J(1) OF THE ACT DEALS WITH DEDUCTION OF TAX AT SOURCE, INTER ALIA , FROM ROYALTY AS PER CLAUSE (C) AND PROVIDES THAT THE PAYER OF ROYALTY, NOT BEING AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, SHALL, DEDUCT TAX AT SOURCE AT THE RATE OF 10%. CLAUSE (BA) TO THE EXPLANATION TO SECTION 194J FURTHER PROVIDE S THAT 'ROYALTY' FOR THE PURPOSE OF THIS SECTION SHALL HAVE THE SAME MEANING AS GIVEN IN SECTION 9(1)(VI) OF THE ACT. THUS, IT IS CLEAR THAT WHERE INCOME IN THE NATURE OF ROYALTY IS PAYABLE TO A RESIDENT-PAYEE, THEN THE PAYER IS LIABLE TO DEDUCT TAX AT SO URCE U/S 194J. FAILURE TO DEDUCT AND PAY SUCH TAX IN THE GOVERNMENT EXCHEQUER ENTAILS, INTER ALIA, DISALLOWANCE U/S 40(A)(IA) OF THE ACT, AS HAS BEEN MADE BY THE AUTHORITIES BELOW IN THE INSTANT CASE. 18. THE LD. AR ADDED ANOTHER DIMENSION TO THE ISSUE BY CONTENDING THAT THE FIRST JUDGMENT IN THE CASE OF CIT VS. SAMSUNG ELECTRONICS CO. LTD. & ORS (SUPRA) WAS DELIVERED ON 24-09-2009 AND THE TRANSACTION OF PAYMENT OF SOFTWARE CHARGES BY THE ASSESSEE GOT CONCLUDED DURING THE YEAR ENDING ON 31-03-2009. IT W AS, ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 16 THEREFORE, URGED THAT THE ASSESSEE COULD NOT HAVE FORESE EN ITS LIABILITY OF DEDUCTION OF TAX AT SOURCE ON THE PAYMENT MADE FO R RENEWAL OF SOFTWARE LICENSE AND HENCE, THE PROVISIONS OF S ECTION 40(A)(IA) SHOULD NOT BE APPLIED. 19. THIS ARGUMENT OF THE LD. AR, THOUGH SOUNDS ATTRAC TIVE AT FIRST FLUSH, BUT, LOSES ITS SHINE ON AN IN-DEPTH ANALYSIS. THERE ARE TWO REASONS FOR OUR NOT CONCURRING WITH THE SAME. FIRST, THE E ARLIER JUDGMENT IN SAMSUNG ELECTRONICS CO. LTD. (SUPRA) RELATES TO THE ASSESSMENT YEARS 1999-200 AND 2001-02 AND OBVIOUSLY THE ASSESSMENT YEAR UNDER CONSIDERATION, NAMELY, 2009-10 IS POSTERIOR TO THE YEARS CONSIDERED BY THE HONBLE JURISDICTIONAL HIGH CO URT. IN THE ABSENCE OF ANY CHANGE IN THE LEGAL POSITION FAVOURING TH E ASSESSEE DURING THE INTERREGNUM, THE SAME WOULD HAVE TO BE APPLIED. FURTHER, WHAT IS RELEVANT IN THIS CONTEXT IS THE POSITION OF LAW RELATING TO A SPECIFIC ASSESSMENT YEAR AND NOT THE DATE OF JUD GMENT. THE SECOND REASON IS THAT THE COURTS DECLARE THE LAW AND D O NOT LEGISLATE IT. ANY JUDGMENT OF THE HONBLE SUPREME/HIGH COURT S IS CONSIDERED AS THE POSITION OF LAW APPLICABLE FROM THE INCEPTION OF THE PROVISION UNLESS IT IS SPECIFICALLY STATED TO HAVE PROSPECTIVE EFFECT. THE HONBLE SUPREME COURT IN M.A. MURTHY VS. STATE OF ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 17 KARNATAKA & ORS. (2003) 264 ITR 1 (SC) HAS HELD THAT : `NORMALLY, THE DECISION OF THIS COURT ENUNCIATING A PRINCIPLE OF LAW IS APPLICABLE TO ALL CASES IRRESPECTIVE OF ITS STAGE OF PENDENCY B ECAUSE IT IS ASSUMED THAT WHAT IS ENUNCIATED BY THE SUPREME COURT IS, IN FACT, THE LAW FROM INCEPTION. WE ARE, ERGO, UNABLE TO ACCORD OUR IMPRIMATUR TO THE CONTENTION PUT FORTH ON BEHALF OF THE ASSE SSEE THAT THE POSITION OF LAW AT THE POINT OF PAYMENT OF ROYALTY WAS ANY DIFFERENT VIS--VIS THE POSITION LATER CLARIFIED IN THE CASE OF SAMSUNG ELECTRONICS (SUPRA). THE ARGUMENT OF THE ASSESSEE THAT IT COULD NOT HAVE CONTEMPLATED LIABILITY TO DEDUCT TAX AT SOURCE AT THE MAT ERIAL TIME WOULD HAVE BEEN CORRECT, IF IT HAD BEEN A CASE OF R ETROSPECTIVE AMENDMENT TO SOME SUBSTANTIVE PROVISION MAKING CERTAIN INCOME CHARGEABLE TO TAX FROM AN EARLIER DATE. PER CONTRA, WE ARE CONFRONTED WITH A SITUATION OF DECLARATION OF LAW BY THE HONBLE JURISDICTIONA L HIGH COURT SUCCEEDED BY AN AMENDMENT OF DECLARATORY NATUR E CLARIFYING THAT THE TRANSFER OF ALL OR ANY RIGHTS IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION INCLUDES AND HAS ALWAYS INCLUDED TRANSFER OF ALL OR ANY RIGHT FOR USE OR RIGHT TO USE A COMPUTER SOFTW ARE. ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 18 20. IN THE ABOVE BACKDROP OF THE FACTS AND THE LEGAL PO SITION , WE UPHOLD THE VIEW CANVASSED BY THE AUTHORITIES BELOW ON THIS ISS UE. THE GROUND RAISED BY THE ASSESSEE IN THIS REGARD IS DISMI SSED. 21. THE NEXT ISSUE URGED IN THE ASSESSEES APPEAL IS A GAINST THE LD. CIT(A) NOT DIRECTING THE AO TO ALLOW FOREIGN TAX CREDIT OF RS.1,91,52,577/- FOR THE TAXES PAID BY FOREIGN BRANCHES AS CLAIMED IN THE RETURN OF INCOME FILED. THE SECOND PART OF THIS GRO UND IS AGAINST THE CONFIRMATION OF THE ACTION OF THE AO IN ALLOWING FOR EIGN TAX CREDIT ONLY TO THE EXTENT OF THE BASIC MAT RATE OF 10% OF PROFITS OF THE FOREIGN BRANCHES WITHOUT ADDING SURCHARGE AND CESS OF 1.33%. 22. SUCCINCTLY, THE FACTS OF THIS ISSUE ARE THAT THE ASSES SEE CLAIMED TAX CREDIT OF RS.1,91,52,577/- IN THE COMPUTATION OF INCOM E TOWARDS TAXES PAID BY ITS OVERSEAS BRANCHES SITUATED IN FIVE COUNTRIES , NAMELY, NETHERLAND, FRANCE, US, UK AND BELGIUM. ON BEING CALLED UPON TO EXPLAIN THE REASONS FOR CLAIMING SUCH TAX CREDIT, THE ASSESSEE SUBMITTED THAT ITS FOREIGN BRANCHES CONSTITUTED PERMANE NT ESTABLISHMENTS (PES) AND SUFFERED TAX ON SUCH INCOMES IN ACCORDANCE WITH THE DOMESTIC TAX LAWS OF THE RESPECTIVE COUNTR IES. THE INCOME EARNED BY THE ABOVE FOREIGN BRANCHES, IN ADD ITION TO SUFFERING TAX IN RESPECTIVE FOREIGN JURISDICTIONS, AGAIN CAME TO BE ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 19 INCLUDED IN THE TOTAL INCOME FOR THE PURPOSES OF TAXATION IN IN DIA. SINCE PROFITS OF THE FOREIGN BRANCHES GOT DOUBLY TAXED, THE ASSESSEE MADE OUT A CASE FOR CLAIM OF CREDIT FOR SUCH TAXES PAID A BROAD AGAINST THE AMOUNT OF TAX PAYABLE IN INDIA. THE AO REQUIRE D THE ASSESSEE TO RECONCILE THE AMOUNT OF INCOME INCLUDED IN ITS TOTAL INCOME UNDER THE ACT AND THE AMOUNT OF INCOME WHICH WAS OF FERED IN FOREIGN TAX JURISDICTIONS FOR WHICH IT WAS CLAIMING TAX CREDIT AGAINST THE TAX LIABILITY UNDER THE ACT. THE ASSESSEE SUBMITTED A RECONCILIATION DETERMINING REVENUE OF RS.10,13,61,402/- SUF FERING DOUBLE TAXATION IN INDIA AND ABROAD. THE AO OBSERVED THAT THE TAX RATES IN THESE COUNTRIES VARIED BETWEEN 10% TO 40%. CONSID ERING THE FACT THAT THE ASSESSEE OFFERED THESE INCOMES IN INDIA FO R TAXATION ONLY AT 10% UNDER THE MINIMUM ALTERNATE TAX AS PER SECTION 11 5JB OF THE ACT, HE ALLOWED FOREIGN TAX CREDIT OF RS.1,01,36,140 /- (10% OF RS.10.13 CRORE INCOME, WHICH SUFFERED DOUBLE TAXATION IN INDIA AND ABROAD). THE ASSESSEES ALTERNATE CONTENTION THAT THE F OREIGN TAX CREDIT SHOULD BE ALLOWED AT 11.33%, INCLUDING SURCHARGE ETC. OF 1.33%, DID NOT FIND FAVOUR WITH THE AO, WHO HELD THAT THE ASSESSEE WAS ENTITLED TO THE FOREIGN TAX CREDIT ONLY FOR THE BASIC RATE OF 10% UNDER THE MAT. THE LD. CIT(A) ACCORDED HIS SEAL OF APP ROVAL TO ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 20 THE VIEW TAKEN BY THE AO, AGAINST WHICH THE ASSESSEE HAS APPROACHED THE TRIBUNAL. 23. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. THE CRUX OF THE ABOVE FACTUAL POSITION IS THAT THE ASSESSEES FOREIGN BRANCHES IN FIVE COUNTRIES CONSTITUTED ITS PES, WHO SUFFERED INCOME TAX IN SUCH JURISDICTIONS. THE ASSESS EE PAID TOTAL TAX OF RS.1.91 CRORE IN FOREIGN COUNTRIES. BECAUSE OF THE ASSESSEE BEING A RESIDENT OF INDIA AND LIABLE TO PAY TAX IN INDIA ON ITS GLOBAL INCOME INCLUDING THAT EARNED BY ITS FOREIGN BRANCHES, S UCH INCOME EARNED BY THE PES CAME TO BE INCLUDED IN THE TOTAL INCO ME UNDER THE ACT. THE AMOUNT OF PROFIT EARNED BY THE PES, W HICH HAS ENTERED INTO THE COMPUTATION OF THE ASSESSEES TOTAL INCOME, IS RS.10.13 CRORE. AS AGAINST THE ASSESSEES CLAIM THAT IT SHOULD BE ALLOWED TAX CREDIT FOR THE FULL AMOUNT OF TAXES PAID ABROAD AMOUNTING TO RS.1.91 CRORE, THE REVENUE HAS HELD THAT ONLY THE AMOUNT OF TAX RELATABLE TO THE DOUBLY TAXED INCOME COULD BE ALLOWED CREDIT AGAINST THE TOTAL TAX LIABILITY OF THE ASSESSEE UNDER THE ACT. THERE IS A FURTHER CONTROVERSY IN THE COMPUTATION OF TA X U/S 115JB AS TO WHETHER THE TAX CREDIT SHOULD BE ALLOWED AT THE RA TE OF 10% OF THE DOUBLY TAXED INCOME, WHICH IS THE BASIC RATE OF TAX U/S ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 21 115JB OR SUCH RATE SHOULD ALSO INCLUDE SURCHARGE AT 1.33% . THUS WE NEED TO DETERMINE THE FOLLOWING TWO ISSUES IN THIS REGARD: - I. WHETHER THE ASSESSEE IS ENTITLED TO THE FULL FOREIGN TAX PAID OR TAX ONLY ON THE DOUBLY TAXED INCOME?; AND II. IF ENTITLED ONLY TO TAX ON DOUBLY TAXED INCOME, THEN THE EXTENT OF FOREIGN TAX CREDIT TO BE ALLOWED? 24. WE CAN BETTER APPRECIATE THE POSITION IN THE LIGHT OF T HE RELEVANT PROVISIONS CONTAINED IN CHAPTER IX OF THE ACT WITH THE CAPTION `DOUBLE TAXATION RELIEF. SECTION 90, BEING, THE FIRST SEC TION OF THIS CHAPTER, TO THE EXTENT IT IS RELEVANT FOR OUR PURPOSE, RUNS AS UNDER: - `90. (1) THE CENTRAL GOVERNMENT MAY ENTER INTO AN A GREEMENT WITH THE GOVERNMENT OF ANY COUNTRY OUTSIDE INDIA OR SPECIFIED TERRITORY OUTSIDE INDIA, (A) FOR THE GRANTING OF RELIEF IN RESPECT OF (I) INCOME ON WHICH HAVE BEEN PAID BOTH INCOME-TAX UNDER THIS ACT AND INCOME-TAX IN THAT COUNTRY OR SPECIFIED TER RITORY, AS THE CASE MAY BE, OR (II) INCOME-TAX CHARGEABLE UNDER THIS ACT AND UNDE R THE CORRESPONDING LAW IN FORCE IN THAT COUNTRY OR SPECI FIED TERRITORY, AS THE CASE MAY BE, TO PROMOTE MUTUAL EC ONOMIC RELATIONS, TRADE AND INVESTMENT, OR.. 25. A CIRCUMSPECTION OF THE ABOVE PROVISION DECIPHERS TH AT IN SO FAR AS SUB-CLAUSE (I) IS CONCERNED, THE SAME TALKS OF GRANTING RELIEF IN RESPECT OF INCOME ON WHICH TAX IS PAID BOTH IN INDIA A ND THE ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 22 OTHER COUNTRY; AND SUB-CLAUSE (II) TALKS OF GRANTING RELIEF IN RESPECT OF INCOME-TAX CHARGEABLE UNDER THE ACT AND THE CONCERN ED FOREIGN COUNTRY. MECHANISM FOR GRANTING RELIEF IS CONTAINED IN THE R ESPECTIVE DOUBLE TAXATION AVOIDANCE AGREEMENTS. 26. THE FIRST ISSUE BEFORE US IS WHETHER THE ASSESSEE IS ENTITLED TO CREDIT FOR THE FULL TAX PAID ABROAD OR THE TAX PAID ONLY ON TH E DOUBLY TAXED INCOME? THE LD. AR CANDIDLY ADMITTED THAT HIS CASE IS CO VERED U/S.90(1)(A)(I) AND NOT UNDER (II) OF SECTION 90(1)(A) OF THE ACT. WE WILL, THEREFORE, FOCUS ONLY ON SUB-CLAUSE (I) OF SECTION 90 (1)(A) OF THE ACT AS PER WHICH THE CENTRAL GOVERNMENT MAY ENTER INTO AN AGREEMENT WITH THE GOVERNMENT OF ANY COUNTRY OUTSIDE INDIA F OR THE GRANTING OF RELIEF IN RESPECT OF INCOME ON WHICH HAVE BEEN PAID BOTH INCOME-TAX UNDER THIS ACT AND INCOME-TAX IN THAT COUNTRY OR SPECIFIED TERRITORY, AS THE CASE MAY BE. THIS SUB-CLAUSE, THEREFORE, PRE-SUPPOSES THAT INCOME WHICH IS SOUGHT TO BE REDUCED FROM THE TOTAL INCOME OF THE ASSESSEE UNDER THE ACT MUST HAVE ALSO B EEN INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE IN THE OTHER COUN TRY. WE FIND THAT EVEN IF THE ASSESSEE IS CHARGEABLE TO TAX UNDER THE ACT ON ITS GLOBAL INCOME, IT MAY STILL BE POSSIBLE THAT SOME INCOME IS CHARGEABLE IN THE FOREIGN TAX JURISDICTIONS BUT NOT CHARGEABLE U NDER ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 23 THE ACT DUE TO EXEMPTION AVAILABLE (WHICH IS DIFFERENT FROM INC OME CHARGEABLE BUT DEDUCTIBLE UNDER THE RELEVANT PROVISIONS). IF A PARTICULAR INCOME IS INCLUDED ONLY IN THE TOTAL INCOME UNDER THE ACT BUT NOT UNDER THE TOTAL INCOME OF OTHER COUNTRY, OR VICE-VERSA, THE SAME CANNOT QUALIFY FOR THE BENEFIT UNDER THE PROVISION. IT IS THUS EVIDENT THAT ONLY THE DOUBLY TAXED INCOME QUALIFIES FOR RELIEF U/S 90(1)(A)(I) OF THE ACT. 27. WE HAVE NOTED ABOVE THAT THE MACHINERY FOR PROVIDIN G RELIEF UNDER SECTION 90 IS CONTAINED IN THE RESPECTIVE DTAAS. A MA JOR CHUNK OF THE ASSESSEES INCOME IS FROM THE USA. THE RELE VANT PROVISION FOR GRANTING RELIEF OF FOREIGN TAX IN THE DTAA BETW EEN INDIA AND USA IS CONTAINED IN ARTICLE 25. PARA 2 OF THE ARTICLE 25 DEALING WITH GRANTING RELIEF TO A RESIDENT OF INDIA, IS AS UNDER : - `2. (A) WHERE A RESIDENT OF INDIA DERIVES INCOME WH ICH, IN ACCORDANCE WITH THE PROVISIONS OF THIS CONVENTION, MAY BE TAXED IN THE UNITED STATES, INDIA SHALL ALLOW AS A DEDUCTION FROM THE TAX ON THE INCOME OF THAT RESIDENT AN AMOU NT EQUAL TO THE INCOME TAX PAID IN THE UNITED STATES, WHETHER D IRECTLY OR BY DEDUCTION. SUCH DEDUCTION SHALL NOT, HOWEVER, EX CEED THAT PART OF THE INCOME TAX (AS COMPUTED BEFORE THE DEDU CTION IS GIVEN) WHICH IS ATTRIBUTABLE TO THE INCOME WHICH MA Y BE TAXED IN THE UNITED STATES. ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 24 28. THE ABOVE PARA FAIRLY INDICATES THAT WHERE A RESIDENT OF INDIA DERIVES INCOME WHICH MAY BE TAXED IN THE UNITED STATES ALSO, THEN INDIA SHALL ALLOW A DEDUCTION FROM THE TAX ON THE INCOME OF THAT RESIDENT OF AN AMOUNT EQUAL TO THE INCOME TAX PAID IN THE UNITED STATES. HOWEVER, A CAP HAS BEEN PROVIDED TO THE EXTENT OF ALLOWING SUCH CREDIT IN THE IMMEDIATELY NEXT LINE BY STATING THAT: ` SUCH DEDUCTION SHALL NOT , HOWEVER, EXCEED THAT PART OF THE INCOME TAX WHICH IS ATTRIBUTABLE TO THE INCOME WHICH MAY BE TAXED IN THE UNITED STATES. 29. IT HAS BEEN NOTICED ABOVE THAT THE AO DETERMINED THE TAX LIABILITY OF THE ASSESSEE UNDER SECTION 115JB OF THE ACT. THIS SECTION CONTAINS A SPECIAL PROVISION FOR PAYMENT OF TAX BY CERTAIN COMPANIES WITH REFERENCE TO BOOK PROFITS, WHICH EXPRESSIO N HAS BEEN DEFINED IN ITS EXPLANATION 1 TO MEAN THE PROFIT AS SHOWN IN THE STATEMENT OF PROFIT AND LOSS OF THE RELEVANT PREVIOUS YEAR A S INCREASED BY CERTAIN ITEMS GIVEN IN CLAUSES (A) TO (K) AND THEN REDUCED BY CERTAIN ITEMS GIVEN IN CLAUSE (I) TO (VIII). THOUGH A PART OF THE INCOME OF THE ASSESSEE QUALIFIED FOR DEDUCTION U/S. 10A IN THE REGULAR COMPUTATION, BUT SUCH DEDUCTION IS NOT AVAILABLE IN THE COMPUTATION OF INCOME U/S.115JB IN VIEW OF THE AMENDED CLAU SE (F) ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 25 AND CLAUSE (II) OF THE EXPLANATION 1 TO SECTION 115JB AT THE MATERIAL TIME. THUS, IT IS EVIDENT THAT IN SO FAR AS COMPUTATION OF TH E ASSESSEES BOOK-PROFIT U/S.115JB IS CONCERNED, THE SAME INCLUDES WITHIN ITS AMBIT THE AMOUNT OF INCOME WHICH IS OTHERWISE ELIGIBLE FOR DEDUCTION U/S.10A AND, AS SUCH, THE ASSESSEE ALSO SUO MOTU INCLUDED SUCH INCOME IN THE COMPUTATION U/S 115JB. IT IS SEEN AS AN ADMITTED POSITION THAT THE ASSESSEE FILED ITS RETURN IN INDIA CONSIDERING NOT ONLY THE INCOME EARNED FROM INDIAN OPERATION S BUT ALSO FROM ITS FOREIGN BRANCHES. THE AO DETERMINED TAX ON INCOME UNDER THE NORMAL PROVISIONS OF THE ACT AT RS.12.75 CRORE AND UNDER SECTION 115JB AT RS.17.25 CRORE. EVENTUAL ASSESSMENT HAS BEEN MADE BY CONSIDERING THE INCOME U/S 115JB. 30. AGAIN COMING BACK TO SECTION 90(1)(A)(I), THE POSITIO N IS THAT RELIEF IS TO BE ALLOWED IN RESPECT OF INCOME ON WHICH TAX HAS BEEN PAID IN INDIA AND THE OTHER COUNTRY. THE ASSESSEE ADMITTED BEFORE THE AO THAT THE INCOME WHICH SUFFERED DOUBLE TAXATION BOTH IN FOREIGN COUNTRIES AND INDIA IS RS.10.13 CRORE. IN THAT VIEW OF THE MATTER, IT BECOMES CLEAR THAT THE RELIEF UNDER SECTION 90(1)(A )(I) OF THE ACT HAS TO BE GRANTED ONLY TO THE EXTENT OF SUCH DOUBLY TA XED INCOME AND NOT BEYOND THAT. THE ASSESSEE PAID TOTAL TAXES IN ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 26 FOREIGN COUNTRIES TO THE TUNE OF RS.1,91,52,577/-. THE AM OUNT OF DOUBLY TAXED INCOME IS RS.10.13 CRORE. AS THE INCOME OF THE ASSESSEE HAS BEEN FINALLY COMPUTED U/S 115JB AND IT IS NOT T HE CASE OF THE AO THAT SUCH INCOME OF RS.10.13 CRORE IS NOT FULLY P ART OF THE BOOK PROFITS COMPUTED U/S 115JB, IT IS THIS AMOUNT OF INCOME WHICH WOULD REQUIRE EXCLUSION FROM THE AMOUNT OF INCOME COMPUTED U/S 115JB. 31. GOING WITH THE ABOVE POSITION AND CONVERTING THE EXCLU SION OF DOUBLY TAXED INCOME OF RS.10.13 CRORE FROM THE TOTAL INCOME IN TERMS OF TAX CREDIT, THE ASSESSEE WILL GET TAX RELIEF OF RS.1,0 1,36,140 (GOING BY THE AO GIVING BENEFIT OF TAX AT THE BASIC RATE UNDE R MAT AT 10%) OR RS.1,14,84,247/- (GOING BY THE BASIC RATE TAX OF TAX UNDER MAT AT 10% PLUS SURCHARGE AT 1.33%). THUS, THE MAXIMUM AMOUNT OF TAX RELIEF WHICH CAN POSSIBLY BE GIVEN TO THE ASSESSEE, S UBJECT TO OUR DETERMINATION OF THE SECOND ASPECT OF THIS ISSUE, IS RS.1,14,84,247/-, MEANING THEREBY THAT THE TAX PAID IN FORE IGN COUNTRIES TO THE TUNE OF RS.76,68,330/- (RS.1,91,52,577/ - MINUS RS.1,14,84,247/-) CANNOT QUALIFY FOR CREDIT AGAINST THE TAX LIABILITY ARISING UNDER THE ACT. ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 27 32. THE LD. AR RELIED ON THE JUDGMENT IN WIPRO LTD. VS. DCIT (2016) 382 ITR 179 (KARN) TO CONTEND THAT CREDIT FOR THE FULL AMOUNT OF FOREIGN TAX AT RS.1,91,52,577/- SHOULD BE ALLOWED. IN OUR CONSIDERED THIS JUDGMENT DOES NOT ADVANCE THE CASE OF THE A SSESSEE. IN THAT CASE, THE ASSESSEE CLAIMED THAT IT WAS ENTITLED TO RELIEF OF INCOME TAXES PAID IN FOREIGN JURISDICTIONS. THE AO DID NOT ACCE PT THE CLAIM, WHICH WAS ALLOWED BY THE CIT(A). HOWEVER, THE TRIBUNAL RESTORED THE MATTER TO FILE OF THE CIT(A) BY HOLDING TH AT WHEN THE ASSESSEE WAS NOT LIABLE TO PAY TAX IN VIEW OF EXEM PTION U/S. 10-A, IT WAS NOT ENTITLED TO TAX RELIEF IN RESPECT OF TAXES PAID IN CONTRACTING COUNTRY AS PER SECTION 90. THE HONBLE HIGH COU RT OBSERVED THAT INCOME U/S. 10A WAS CHARGEABLE TO TAX U/S. 4 AND WAS INCLUDIBLE IN TOTAL INCOME U/S. 5, BUT NO TAX WAS CHARGED BECA USE OF EXEMPTION GIVEN U/S. 10A ONLY FOR A PERIOD OF 10 YEARS. IT HELD THAT MERELY BECAUSE EXEMPTION HAS BEEN GRANTED IN RESPECT OF TA XABILITY OF SOURCE OF INCOME, IT COULD NOT BE POSTULATED THAT ASSESSE E WAS NOT LIABLE TO TAX. IT IS PALPABLE FROM THE ABOVE JUDGMENT THAT THE IS SUE RAISED BEFORE IT WAS QUITE DIFFERENT. IT WAS ON THE POINT THAT WHETHER TAX ON INCOME PAID ABROAD, WHICH INCOME OTHERWISE QUALIFIES FOR THE BENEFIT U/S 10A OF THE ACT, SHOULD BE GRANTED RELIEF? ON THE OTHER HAND, ADMITTEDLY INCOME WHICH HAS BEEN DEDUCTED U/S 1 0A IN ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 28 THE NORMAL COMPUTATION IS CHARGEABLE UNDER THE COMPUTATION U/S 115JB AND IT IS NOT THE CASE OF THE AO THAT FOREIGN TAX RELATA BLE TO SUCH DEDUCTIBLE INCOME UNDER THE NORMAL PROVISIONS SHOULD NO T BE ALLOWED CREDIT. THE HONBLE HIGH COURT IN WIPRO LTD. (SUPRA) HAS FURTHER LAID DOWN IN PARA 59 THAT: `HOWEVER, THE SAID PROVISIO N MAKES IT CLEAR THAT SUCH DEDUCTION SHALL NOT, HOWEVER, EXCEED THAT PART OF THE INCOME TAX (AS COMPUTED BEFORE THE DEDUCTION IS GIVEN) WHICH IS ATTRIBUTABLE TO THE INCOME WHICH IS TO BE TAXED IN UNITED STATES . WE, THEREFORE, HOLD THAT THE ASSESSEE IS ENTITLED TO CREDIT FOR THE TAX PAID IN FOREIGN COUNTRIES ONLY TO THE EXTENT OF THE DOUB LY TAXED INCOME AND NOT THE REMAINING AMOUNT, WHOSE CORRESPON DING INCOME IS NOT A PART OF THE COMPUTATION OF INCOME U/S 115J B UNDER THE ACT. 33. NOW WE TURN TO THE SECOND ASPECT OF THE ISSUE ABO UT THE EXTENT OF FOREIGN TAX CREDIT TO BE ALLOWED IN RESPECT OF THE DOUBLY TAXED INCOME. WHEREAS THE AO HAS RESTRICTED THE TAX CREDIT TO THE EXTENT OF 10% OF THE DOUBLY TAXED INCOME, BEING, THE BASIC RATE AT WH ICH INCOME IS CHARGEABLE TO TAX U/S 115JB, THE ASSESSEE SEEKS, NOTWITHSTANDING ITS CLAIM FOR FULL CREDIT FOR FOREIGN TAXES, CRE DIT FOR ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 29 THE FOREIGN TAX AT THE EFFECTIVE RATE OF TAX AND SURCHARGE ETC. U/S 115JB, THAT IS, 11.33%. 34. WE HAVE NOTED THE LANGUAGE OF SECTION 90(1)(A)(I ) WHICH TALKS OF GRANTING RELIEF IN RESPECT OF DOUBLY TAXED INCOME. SIMILA RLY, WE HAVE NOTED ARTICLE 25(2) OF THE DTAA BETWEEN INDIAN AND THE USA PROVIDING FOR DEDUCTION FROM THE TAX ON THE INCOME OF AN AM OUNT EQUAL TO THE INCOME TAX PAID IN THE USA. ON A CONJOINT READING O F THE ABOVE PROVISIONS, FOLLOWING TWO THINGS EMERGE. FIRST IS TH AT IT IS THE AMOUNT OF DOUBLY TAXED INCOME WHICH HAS TO BE EXCLUDED FROM THE INCOME CHARGEABLE TO TAX IN INDIA. ONCE WE EXCLUDE SUCH DOUBLY TAXED INCOME FROM THE INCOME COMPUTED UNDER THE ACT, THEN WHATEVER IS THE AMOUNT OF TAX AND SURCHARGE THEREON WILL GE T AUTOMATICALLY EXCLUDED FROM THE TOTAL TAX LIABILITY COMPUTED UNDER THE ACT. SECOND IS THAT THE DEDUCTION FROM THE INCOME TAX LIABILITY UNDER THE ACT HAS TO BE RESTRICTED TO THE AMOUNT OF INCOME TA X PAID IN THE USA ON SUCH DOUBLY TAXED INCOME. THE ABOVE TWO PROPOSITIONS, WHEN APPLIED TO THE FACTUAL PANORAMA OF THE EXTA NT CASE, LEADS US TO THE INEVITABLE CONCLUSION THAT ONCE THE DOUBLY TAXED INCOME IS TO BE EXCLUDED, IT WOULD MEAN THAT THE FOREIGN TAX CREDIT WILL HAVE TO BE ALLOWED ON IT AT THE RATE AT WHICH SUCH IN COME ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 30 ATTRACTED TAXATION UNDER THE ACT, WHICH IS 11.33% UNDER SECTION 115JB OF THE ACT. IF HOWEVER, THE AMOUNT OF TAX PAID IN TH E OTHER COUNTRY IS LESS THAN 11.33%, THEN THE DEDUCTION SHOULD BE LIM ITED TO THE AMOUNT OF TAX PAID ON SUCH DOUBLY TAXED INCOME IN THE OTH ER COUNTRY. THE AO HAS NOTED IN THE ASSESSMENT ORDER THAT TH E ASSESSEE PAID FOREIGN TAX AT THE RATES RANGING FROM 10% TO 40%. THUS IF THE DOUBLY TAXED INCOME WAS SUBJECTED TO TAX IN THE O THER COUNTRY AT THE RATE OF 10%, THEN TAX CREDIT SHOULD BE RESTRI CTED TO 10% AND IN CASE IT WAS SUBJECTED TO FOREIGN TAX IN THE OTHER COUNTRY AT A RATE HIGHER THAN 11.33% (SAY, 15% OR 20% OR 40%), THEN THE AMOUNT OF FOREIGN TAX CREDIT SHOULD BE RESTRICTED TO 11.33% O F THE CONCERNED DOUBLY TAXED INCOME. THE AO IS DIRECTED TO VERIF Y THE RESPECTIVE TAX RATES IN NETHERLAND, FRANCE, US, UK AND BELGIUM FOR THE YEAR UNDER CONSIDERATION ON WHICH THE ASSESSEE PAID TA XES AND THEN ALLOW THE BENEFIT ACCORDINGLY AFTER GRANTING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 35. GROUND NO.2 OF THE ASSESSEES APPEAL IS AGAINST THE CONFIRMATION OF DISALLOWANCE U/S.14A OF THE ACT READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962 (HEREINAFTER ALSO CALLED `THE RULES) AT RS.80,93,070/-. ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 31 36. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESS EE CLAIMED DIVIDEND INCOME AMOUNTING TO RS.8,74,13,850/- EARN ED ON MUTUAL FUNDS AS EXEMPT FROM TAX. THE ASSESSING OFFICER ( AO) OBSERVED THAT NO DISALLOWANCE WAS OFFERED BY THE ASSESSEE U/S.14A OF THE ACT. ON BEING CALLED UPON TO EXPLAIN THE REASONS FOR NOT OFFERING THE DISALLOWANCE, THE ASSESSEE SUBMITTED THAT A SUO MOTU DISALLOWANCE OF RS.3,13,492/- WAS OFFERED. THE AO, NO T SATISFIED, COMPUTED THE DISALLOWANCE U/S.14A R.W. RULE 8D AT RS.80,93, 070/-. THE LD. CIT(A) ECHOED THE ASSESSMENT ORDER ON THIS POINT. 37. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RE LEVANT MATERIAL ON RECORD. THE ASSESSMENT YEAR UNDER CONSIDERA TION IS 2008-09. UNLIKE EARLIER YEARS, RULE 8D IS APPLICABLE FOR THE PURPOSE OF MAKING DISALLOWANCE U/S.14A. THE DISALLOWANCE MADE BY TH E AO IS IN TWO PARTS, VIZ., RS.5,49,818/- UNDER RULE 8D(2)( II) AND RS.75,43,252/- UNDER RULE 8D(2)(III). IN SO FAR AS THE DISALLOWANCE OF RS.5,49,8198/- IS CONCERNED, IT IS SEEN FROM THE ASSE SSEES BALANCE SHEET, WHOSE COPY HAS BEEN PLACED IN THE PAPER B OOK, THAT AS AGAINST INVESTMENTS OF RS.176.57 CRORE, THE ASSESSEE S SHAREHOLDERS FUND STANDS AT RS.509.29 CRORE. THUS, IT IS EVIDENT THAT THE SHAREHOLDERS FUND IS FAR IN EXCESS OF THE AMOUNT OF ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 32 INVESTMENTS. THE HON'BLE KARNATAKA HIGH COURT IN CIT & ANR VS. MICROLABS (2016) 383 ITR 490 (KAR) HAS HELD THAT WHEN INVESTMENTS ARE MADE FROM A COMMON POOL AND NON-INTERES T BEARING FUNDS ARE MORE THAN THE INVESTMENT IN TAX FREE SECURITIES, N O DISALLOWANCE OF INTEREST EXPENDITURE U/S 14A CAN BE MADE. THIS VIEW HAS BEEN TAKEN BY FOLLOWING THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN CIT VS. HDFC BANK LTD. (2014) 366 ITR 515 (BOM). IT IS FURTHER OBSERVED THAT THIS ISSUE IS NOW NO MORE RES INTEGRA IN VIEW OF THE JUDGMENT DELIVERED BY THE HON'BLE SUPREME COURT IN GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DCIT (2017) 394 ITR 449 (SC) , UPHOLDING THE VIEW OF THE LOWER AUTHORITIES THAT WHEN INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES ETC. ARE MORE THAN THE AMOUNT OF INVESTMENT, THEN NO DISALLOWANCE OF INTEREST CAN BE MADE U/S 14A. RESPECTFULLY FOLLOWING THE PRECEDENTS, WE ORDER TO DELETE THE DISALLOWANCE UNDER RULE 8D(2)(II) TO THE TUNE OF RS.5,49,818/-. 38. NOW WE COME TO THE DISALLOWANCE MADE UNDER RULE 8D(2) (III) AMOUNTING TO RS.75,43,252/-. IT IS SEEN THAT THE SAME HAS B EEN WORKED OUT BY THE AO AT 0.50% OF AVERAGE AMOUNT OF INVES TMENTS. THIS COMPUTATION IS STRICTLY IN ACCORDANCE WITH THE MANDATE OF R ULE ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 33 8D(2)(III). SINCE RULE 8D IS APPLICABLE FROM THE ASSESSMENT YE AR UNDER CONSIDERATION, THE DISALLOWANCE HAS TO BE MADE AND SU STAINED IN ACCORDANCE WITH THE PRESCRIPTION OF SUCH RULE ONLY. 39. HERE WE WOULD LIKE TO CLARIFY THAT THE HON'BLE DELHI H IGH COURT IN ACB INDIA LTD. VS. CIT (2015) 374 ITR 108 (DEL) HAS HELD THAT THE AVERAGE VALUE OF INVESTMENTS, FOR THE PURPOSES O F RULE 8D(2)(III), SHOULD BE CONFINED TO THOSE SECURITIES IN RESPECT OF WHICH EXEMPT INCOME IS EARNED AND NOT THE TOTAL INVESTMENTS. SIMILA R VIEW HAS BEEN TAKEN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. VIREET INVESTMENTS (P) LTD. (2017) 165 ITD 27 (DEL) (SB) HOLDING THAT ONLY THOSE INVESTMENTS SHOULD BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INVESTMENTS WHICH YIELD EXEM PT INCOME DURING THE YEAR. IN VIEW OF THE AFORE REFERRED P RECEDENTS, WE SET ASIDE THE IMPUGNED ORDER TO THIS EXTENT AND REMIT THE MATTER TO THE FILE OF ASSESSING OFFICER FOR RE-COMPUTING THE DISALLOWA NCE UNDER RULE 8D(2)(III) BY CONSIDERING ONLY SUCH INVESTMENTS IN CALCULATING THE AVERAGE VALUE OF INVESTMENTS, WHICH HAVE YIELD ED EXEMPT INCOME DURING THE YEAR. THE ASSESSEE WILL BE ALLOWE D HEARING OPPORTUNITY IN THE FRESH PROCEEDINGS. ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 34 40. THE LD. AR FURTHER CONTENDED THAT A SUO MOTU DISALLOWANCE OF RS.3,13,492/- WAS OFFERED BY THE ASSESSEE UNDER SECTIO N 14A. THE AO IS DIRECTED TO VERIFY THIS CLAIM AND THEN ACCORDINGLY COMPU TE THE AMOUNT DISALLOWABLE U/S.14A R.W. RULE 8D(2)(III). 41. GROUND NO.4 OF THE ASSESSEES APPEAL IS AGAINST THE CONFIRMATION OF ADDITION OF RS.5,84,000/-, BEING, THE VALUE OF LAPSED ESPOS IN THE INCOME COMPUTED UNDER THE NORMAL PROVISIONS OF TH E ACT AS WELL AS THE PROFITS COMPUTED U/S.115JB. 42. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. BOTH THE SIDES ARE IN AGREEMENT THAT THE FACTS AND CIRCUMSTANCES OF THIS GROUND ARE SIMILAR TO THOSE OF T HE IMMEDIATELY PRECEDING TWO ASSESSMENT YEARS, APPEALS OF W HICH HAVE BEEN DECIDED BY THE TRIBUNAL ON 05-08-2019. IN THE APP EAL FOR THE A.Y. 2008-09, THE TRIBUNAL IN IT(TP)A.NO.287/BANG/2013 HAS HELD THAT THE AMOUNT OF ESOPS WAS RIGHTLY CREDITED BY THE ASSESSEE TO THE GENERAL RESERVE ON LAPSE OF OPTION AND HENCE CANNOT BE INCLUDED IN THE COMPUTATION OF BOOK PROFITS U/S.115JB OF THE ACT. IT HA S FURTHER BEEN DIRECTED THAT SUCH AN AMOUNT OF LAPSED ESOPS SHOULD BE CONSIDERED AS INCOME CHARGEABLE TO TAX U/S.41(1) FOR THE YEAR IN ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 35 WHICH CESSATION OR REMISSION TOOK PLACE AND NOT THE YEARS IN WHICH DEDUCTION WAS CLAIMED. WE HOLD ACCORDINGLY. 43. GROUND NO.5 OF THE ASSESSEES APPEAL IS AGAINST RE DUCING TELECOMMUNICATION CHARGES AND INTERNET USAGE CHARGES TOTALLIN G RS.9,82,28,337/- FROM ONLY THE EXPORT TURNOVER IN COMP UTING DEDUCTION U/S.10A. GROUND NO.1 OF THE REVENUES APPEAL IS AGAINST THE DIRECTION OF THE LD. CIT(A) THAT LINK CHARGES AND INTERNET USAGE CHARGES BE REDUCED FROM EXPORT TURNOVER AND ALSO FRO M TOTAL TURNOVER. 44. THIS ISSUE ALSO CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN RELATION TO THE A.Y. 2007-08. VIDE ITS ORDER DATED 05-08-2 019 IN IT(TP)A. NO.286/BANG/2013, THE TRIBUNAL HAS HELD THAT ANY AMOUNT REDUCED FROM EXPORT TURNOVER SHOULD ALSO BE REDUCED F ROM THE AMOUNT OF TOTAL TURNOVER IN THE COMPUTATION OF DEDUCTION U/S .10A OF THE ACT. FOLLOWING THE SAME, WE ALLOW THE ASSESSEES GROU ND AND DISMISS THAT OF THE REVENUE. 45. GROUND NO.6 OF THE ASSESSEES APPEAL IS AGAINST EXCLUDING FOREIGN CURRENCY EXPENSES AMOUNTING TO RS.1,07,63,08,98 0/- FROM THE EXPORT TURNOVER IN THE PROCESS OF COMPUTATION OF DEDU CTION U/S.10A. THE LD. AR FAIRLY AGREED THAT THE FULL AMOUNT OF F OREIGN ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 36 CURRENCY EXPENSES HAS BEEN RIGHTLY HELD TO BE EXCLUDIBLE F ROM THE AMOUNT OF EXPORT TURNOVER. IT WAS, HOWEVER, PRAYED TH AT THE SAME AMOUNT MAY ALSO BE EXCLUDED FROM THE AMOUNT OF TOTAL TURNO VER. FOLLOWING SIMILAR VIEW TAKEN BY US IN RELATION TO GROUND NO.5 O F THE ASSESSEES APPEAL AND GROUND NO.1 OF THE REVENUES APPEAL ABOVE, WE HOLD THAT THE AMOUNT OF FOREIGN CURRENCY EXPENSE S TO THE TUNE OF RS.107.63 CRORE BE EXCLUDED FROM THE EXPORT TUR NOVER AS WELL AS TOTAL TURNOVER. 46. GROUND NO.7 OF THE ASSESSEES APPEAL IS AGAINST REDUCTION IN THE AMOUNT OF DEDUCTION U/S.10A BY A SUM OF RS.2,41,23, 133/- ON THE PREMISE THAT THE ASSESSEE IS IN THE BUSINESS OF DEPUTATION OF TECHNICAL MANPOWER (DTM) AND/OR RENDERING OF TECHNICAL SER VICES OUTSIDE INDIA AND HENCE INCOME FROM PROVIDING ONSITE DEVELOP MENT OF COMPUTER SOFTWARE IS NOT ELIGIBLE FOR DEDUCTION U/S.10A. 47. SIMILAR ISSUE HAS BEEN DETERMINED BY THE TRIBUNAL IN TH E ASSESSEES OWN CASE FOR THE A.Y. 2007-08 HOLDING THAT THE AMOUNT RELATABLE TO DTM AND ONSITE SOFTWARE SERVICES SHOULD BE CONS IDERED AS ELIGIBLE FOR DEDUCTION U/S.10A OF THE ACT. SINCE FACTS AND CIRCUMSTANCES ARE ADMITTEDLY SIMILAR, FOLLOWING THE VIEW TAKEN FO R THE A.Y. 2007-08, WE DETERMINE THIS ISSUE IN FAVOUR OF AS SESSEE. ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 37 48. GROUND NO.8 OF THE ASSESSEES APPEAL IS AGAINST TH E LD. CIT(A) IN NOT DIRECTING THE AO TO ALLOW SET OFF OF BROUGHT FORWARD LO SSES AND UNABSORBED DEPRECIATION OF EARLIER YEARS AGAINST THE BU SINESS INCOME, SHORT TERM CAPITAL GAIN AND INCOME FROM OTHER SOURC ES IN COMPUTING TOTAL INCOME IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER VI. GROUND NO.2 OF THE REVENUES APPEAL IS AG AINST THE DIRECTION OF THE LD. CIT(A) IN HOLDING THAT IF THE UNIT OF THE ASS ESSEE IS INDEPENDENT THEN ITS LOSS COULD NOT BE ADJUSTED AGAINST THE PR OFITS OF OTHER UNITS FOR THE PURPOSES OF COMPUTING DEDUCTION U/S.1 0A. 49. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. THE TRIBUNAL IN ITS ORDER FOR THE A.Y. 2007-08 HAS DISCUSSED THIS ISSUE THREADBARE AND FOLLOWING THE JUDGMEN T OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. YOKOGAWA INDIA LTD. (2017) 291 CTR 1 (SC) HAS HELD THAT THE DEDUCTION SHOULD BE ALLOWED QUA THE ELIGIBLE UNDERTAKING STANDING ON ITS OWN WITHOUT REFERENCE TO THE OTHER ELIGIBLE OR NON-ELIGIBLE UNIT OR UNDERTAK INGS. TO PUT IT SIMPLY, THE PROFITS OF THE ELIGIBLE UNITS SHOULD BE CONSIDERED ON STANDALONE BASIS. FOLLOWING THE VIEW, WE DETERM INE THE ISSUE ACCORDINGLY. ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 38 50. GROUND NO.9 OF THE ASSESSEES APPEAL ABOUT THE D EDUCTION OF INTEREST U/S.80G WAS NOT PRESSED BY THE LD. AR, WHICH HERE BY STANDS DISMISSED. 51. GROUND NO.11 OF THE ASSESSEES APPEAL IS AGAINST TH E LD. CIT(A) IN NOT DIRECTING THE AO TO DETERMINE THE AMOUNT OF MAT CREDIT TO BE CARRIED FORWARD IS STATED TO BE CONSEQUENTIAL TO GROUND NO.10 RELATING TO FOREIGN TAX CREDIT, WHICH WE HAVE DECIDED SUPRA. 52. GROUND NO.12 IS AGAINST THE LEVY OF INTEREST U/SS. 2 34B AND 234C. THE LD. AR SUBMITTED THAT PURSUANT TO AMENDMENT CARRI ED OUT IN SECTION 115JB BY SUBSTITUTION OF CLAUSE (I) OF EXPLANATIO N 1, THE AMOUNT OR AMOUNT SET-ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET CAME TO BE ADDED TO THE AMOUNT OF PROF IT AS SHOWN IN THE STATEMENT OF PROFIT AND LOSS. THE LD. AR SUB MITTED THAT THIS AMENDMENT CAME INTO FORCE AFTER THE CLOSE OF THE RELEVA NT FINANCIAL YEAR AND HENCE, THE ASSESSEE COULD NOT HAVE ANTIC IPATED ITS LIABILITY TO PAY ADVANCE TAX ON THE SAME AT THE MATERIAL TIME. IT WAS, THEREFORE, PRAYED THAT INTEREST U/SS.234B AND 234C SHOULD BE DIRECTED TO BE SUITABLY REDUCED. 53. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. THE ASSESSEES COMPUTATION OF INCOME ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 39 U/S.115JB HAS BEEN PLACED AT PAGE 58 OF THE PAPER BOOK. IT CAN BE SEEN THAT IN SUCH COMPUTATION, THE ASSESSEE ADDED RS.6,99, 33,296/- TOWARDS `THE AMOUNT OR AMOUNTS SET-ASIDE FOR DIMINUTION IN THE VALUE OF ANY ASSET. THE AMENDMENT TO SECTION 115JB THROUG H CLAUSE (I) HAS BEEN BROUGHT OUT BY THE FINANCE (NO.2) ACT, 2009 WITH RETROSPECTIVE EFFECT FROM 01-04-2001. THE FINANCE (NO. 2) BILL 2009 WAS INTRODUCED IN THE LOK SABHA ON 06-07-2009, WHER EAS THE FINANCIAL YEAR OF THE ASSESSEE CLOSED ON 31-03-2009. IT IS PURSUANT TO THE RETROSPECTIVE AMENDMENT COMING INTO FORCE AFTER THE CLOS E OF THE FINANCIAL YEAR BUT BEFORE THE FILING OF THE RETURN THAT THE ASSESSEE COMPUTED ITS INCOME U/S.115JB ACCORDINGLY. IN SO FAR AS TH E QUESTION OF CHARGING INTEREST U/S.234B AND 234C IS CONCERNE D, IT IS FOUND THAT THE HONBLE JURISDICTIONAL KARNATAKA HIGH COURT IN CIT VS. KIRLOSKAR SYSTEMS LTD. (2013) 40 TAXMANN.COM 124 (KA R.) HAS HELD THAT INTEREST U/S.234B AND 234C CANNOT BE LEVIED FOR DEF AULT IN PAYMENT OF ADVANCE TAX IN CASE WHEREIN SECTION 115JB IS INV OKED PURSUANT TO SUCH AMENDMENT. WE, THEREFORE, HOLD THAT INTER EST U/SS.234B AND 234C SHOULD NOT BE CHARGED TO THE EXTENT O F RETROSPECTIVE AMENDMENT TO SECTION 115JB AFFECTING THE COMPUTATION OF BOOK PROFITS ACCORDINGLY. ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 40 54. GROUND NO.13 OF THE ASSESSEES APPEAL WAS NOT P RESSED BY THE LD. AR, WHICH IS HEREBY DISMISSED. 55. THE THIRD AND THE FOURTH GROUNDS OF THE REVENUES APPEAL ARE AGAINST THE DIRECTION BY THE LD CIT(A) TO THE TPO FOR COMPUTING ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF `INTEREST RECEIVED AT RS.5,86,903/- FROM ITS ASSOCIATED ENTERPRISE A DOPTING THE AVERAGE EURIBOR RATE AS APPLICABLE TO THE A.Y. 2009-10 . 56. HERE AGAIN, BOTH THE SIDES ARE IN AGREEMENT THAT TH E FACTS AND CIRCUMSTANCES OF THESE GROUNDS ARE SIMILAR TO THOSE FOR THE PRECEDING YEARS WHEREIN THE TRIBUNAL HAS HELD THAT EURIBOR +2% SHOULD BE CONSIDERED AS BENCHMARK FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION OF INTEREST RECEIVED. WE FOLLOW THE SAM E AND ORDER ACCORDINGLY. 57. IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH AUGUST, 2019. SD/- SD/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRE SIDENT PUNE; DATED : 26 TH AUGUST, 2019 ITA NO.342/PUN/2014 AND IT(TP) A.NO.10/BANG/2014 IGATE GLOBAL SOLUTIONS LTD. 41 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-IV, BANGALORE 4. 5. 6. THE CCIT-II, BANGALORE , , / DR C, ITAT, PUNE; / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR P RIVATE SECRETARY , / ITAT, PUNE DATE 1. DRAFT DICTATED ON 20-08-2019 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 23-08-2019 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *
